Oversupply of Dallas Homes Places Texas Mortgage Seekers in Charge

A building boom in teardown homes has left the Dallas area with a growing inventory of unsold new homes in older neighborhoods. The Dallas Morning News had the report.

At the end of 2006, almost 875 new houses were finished and vacant or under construction in several Dallas and Park Cities neighborhoods, according to a survey by Residential Strategies Inc.

Builders closed sales of only about 600 homes in so-called teardown neighborhoods last year. The number of unsold finished homes has more than tripled in the past year.

The volume of homes in the construction pipeline in these areas is “way up,” said Residential Strategies’ Ted Wilson. At the same time, Texas mortgage demand for all new homes in the Dallas area has softened.

“They have probably overdone it a little bit,” Mr. Wilson said. “I think they need to wait a little bit in some markets before they start more new homes.”

During the last few years, an influx of buyers wanting new houses in old neighborhoods has fueled a surge in construction in the North and East Dallas housing market.

Demand for these high-end homes has caused a flurry of teardowns in several close-in residential districts. But the bulldozers may be getting ahead of the sold signs, the latest survey reveals.

The inventories of unsold new homes are highest in the popular housing enclaves just east of North Central Expressway where small houses built in the 1920s, 1930s and 1940s are being plowed under to make way for bigger homes.

Almost half of the unsold new houses – more than 130 units – are located in three districts in East Dallas, including Lakewood Heights, the M Streets and Lakewood, Residential Strategies said.

“We may temporarily have too much inventory on the ground,” Mr. Wilson said. “It’s not the end of the world – it can be worked through.

“But there is quite a bit of construction under way in these markets, and it’s not going to go away.”

Builders say they recognize that home construction may be outpacing Texas home sales in some areas.”We have definitely seen the inventory levels grow in the last 12 months,” said Jeff Dworkin, who builds homes ranging from $375,000 to over $450,000 in East Dallas neighborhoods.

But while there are lots of unsold homes on the market, some builders may decide to go ahead with more starts, Mr. Dworkin said.

“The market has gotten the message in some places,” he said “But there are some smaller builders out there who have no choice, because they already own the lots and have the loans in place.”

Builders also typically ramp up their construction early in the year so they will have houses to sell in the traditionally busy spring and summer markets. After all, this is the time where home mortgage activity is at its highest.

Mr. Dworkin said he’s taking a conservative approach. He recently lowered the prices on some of his homes to reduce inventory.

“We will start new ones up as we sell them,” he said. “If you don’t have product on the ground, it’s difficult to sell it.”

Residential Strategies estimates that there is a 5.6-month supply of finished, unsold new homes – 284 units – on the market in teardown neighborhoods.

“The biggest increases in inventory have been in the higher price points,” Mr. Wilson said.

Counting what’s under construction, there is almost a 12-month supply of new homes in these neighborhoods. Considering recently low Texas mortgage rates, these properties should hopefully move quickly.

“The months supply of homes under construction tends to be higher in the teardown market because the construction time is longer,” Mr. Wilson said.

There is a 3-month supply of new homes in the entire Dallas-Fort Worth area.

Real estate agents have noticed the increase in unsold new homes.

“There is more new-home inventory east of Central than in years past,” said Markus Liesner with Wayne Garcia GMAC Real Estate. “In our view, the demand is there, but it’s taking people longer to make the decision because they are unsure of the economy.”